Economy

Euro weakens to near nine-year low

European currency now at lowest level since March 2006 as it extends its loss over the past year to 12 per cent

Participants clap their hands in front of an electronic board showing the Japan’s Nikkei average after the New Year opening ceremony at the Tokyo Stock Exchange (TSE), held to wish for the success of Japan’s stock market, in Tokyo on Monday. The euro hit a nearly nine-year low versus the dollar as investors bet on quantitative easing by the European Central Bank while Asian shares were subdued as soft manufacturing surveys soured the mood. Japan’s Nikkei opened down 0.5 per cent on the first trading day of the year. (Photograph: Yuya Shino/Reuters)

Mon Jan 5 2015 - 07:58

The euro weakened to an almost nine-year low and European stock-index futures fell amid concern Greece will exit the currency union. Chinese shares jumped, while oil slumped to its lowest level since 2009.

The euro depreciated 0.4 per cent to $1.1950 at 7:05 a.m. in London, after touching its weakest level since March 2006. The dollar gained against all but two of its 16 major peers. The ruble slumped 4.2 per cent.

Futures on the Euro Stoxx 50 Index fell 0.5 per cent, while Standard and Poor's 500 Index contracts slid 0.2 per cent. The Shanghai Composite Index surged 3.6 per cent to its highest level in five years. A gauge of global bond yields approached a record low. Crude slid 2.1 per cent and silver rose 1.9 per cent. Greece's political parties have embarked on a campaign for elections this month that may determine the fate of the country's membership in the euro area, with Der Spiegel magazine reporting German Chancellor Angela Merkel is ready to accept a Greek exit.

Data this week will probably show consumer prices in Europe fell for the first time in five years in December, adding to the argument for European Central Bank President Mario Draghi to extend stimulus. "The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE and deepening concerns about the Greek political situation," Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, said by phone.

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“The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff.”

Dollar strength

The euro reached a low of $1.1864 today, extending its loss over the past year to 12 per cent as euro-region and US monetary policy diverged. While the Federal Reserve has wound back its own bond-buying program and floated the prospect of raising interest rates from near zero, the ECB reduced rates and started asset purchases in a bid to stoke economic growth. Draghi said in an interview with German newspaper Handelsblatt published last week that while deflation risks are "limited," policy makers "have to act against such risk." Asked how much the ECB might spend on government bonds, he answered that it's "difficult to say." European consumer prices probably dropped 0.1 percent in December from a year earlier, according to a Bloomberg survey. That would be the first decline since October 2009, when the economy was struggling to recover from a slump after the financial crisis. German inflation and Spanish unemployment figures are due today.

Bond yields

The pound declined to its weakest level since August 2013, while the Swiss franc lost 0.4 per cent and the Australian dollar depreciated 0.5 percent. The Indonesian rupiah weakened 0.7 per cent. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major counterparts, added 0.3 per cent, heading for its highest close since March 2009.

Australian 15-year yields fell to an unprecedented 2.97 per cent and Japan’s five-year yield dropped to a record 0.025 per cent. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.30 per cent on Jan. 2, approaching the low of 1.29 per cent set in 2013, based on data going back to 1996.

Consumer staples and telecom stocks led declines on the MSCI Asia Pacific Index, which dropped 0.7 percent. The Kospi lost 0.6 per cent in Seoul and Taiwan’s Taiex Index retreated 0.4 per cent. Japan’s Topix fell 0.5 per cent. Hong Kong’s Hang Seng Index was little changed. The Shanghai Composite extended its rally over the past six months to 63 per cent. A gauge of Chinese energy shares rose 8.9 per cent today, the most in more than six years, with PetroChina Co. and China Shenhua Energy Co. soaring by the 10 per cent daily limit. Crude Falls West Texas Intermediate crude slipped to $51.71 a barrel after capping a sixth straight weekly loss Jan. 2.

Brent crude in London fell 1.8 per cent to $55.43 per barrel, with both blends headed for their lowest settlement levels since 2009. WTI and Brent tumbled more than 40 per cent last year as the highest US oil output in about 30 years collided with slowing global demand and OPEC’s reluctance to reduce its own production. Iraq plans to boost crude exports this month, according to the oil ministry. Silver advanced to $16.0525 an ounce in the spot market, while tin climbed 1.8 per cent.

Bloomberg

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